Giles Coghlan LLB, Lth, MA
Financial Source
This was an interesting research note from Goldman Sachs (GS) on the case for further commodity gains this year. Below are some points GS make for further upside in the commodity space.
1. Many forward balances are showing draws in many commodities
Wheat, copper, European gas, aluminium and Nickel are all seeing continued draws in balances. In other words, the supply is not in place to meet the demand. If the world gets moving again and the pandemic moves firmly into an endemic stage this could quickly become worse as demand picks up again.
2. Capital investment into commodities has been hit hard
GS say that the latest risks from Omicron and China have slowed capital flows into commodity investments. They project scarcity pricing to continue and see 16.2% returns for commodities this year. Added to this is the fact that supply uncertainty remains extremely high. On top of this is the fact that a green pivot has made investors reluctant to invest in fossil fuels and investment in the oil industry is low.
3. Commodities can make a good hedge against valuation risk
Equities are highly valued and look very vulnerable to rising rates. With 4 priced in this year (from 0 last) commodities can offer a hedge against falling valuations.
They also note that commodities tend to perform besting the hiking phase of the rates cycle as outlined in this useful chart below.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
AUD/USD: The hunt for the 0.7000 hurdle
AUD/USD quickly left behind Wednesday’s strong pullback and rose markedly past the 0.6900 barrier on Thursday, boosted by news of fresh stimulus in China as well as renewed weakness in the US Dollar.
EUR/USD refocuses its attention to 1.1200 and above
Rising appetite for the risk-associated assets, the offered stance in the Greenback and Chinese stimulus all contributed to the resurgence of the upside momentum in EUR/USD, which managed to retest the 1.1190 zone on Thursday.
Gold holding at higher ground at around $2,670
Gold breaks to new high of $2,673 on Thursday. Falling interest rates globally, intensifying geopolitical conflicts and heightened Fed easing bets are the main factors.
Bitcoin displays bullish signals amid supportive macroeconomic developments and growing institutional demand
Bitcoin (BTC) trades slightly up, around $64,000 on Thursday, following a rejection from the upper consolidation level of $64,700 the previous day. BTC’s price has been consolidating between $62,000 and $64,700 for the past week.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.